Best Buy’s International Segment Remained a Sore Spot in 2Q16
An Insight into Best Buy’s Impressive 2Q16 Results
International business
The revenue of Best Buy’s (BBY) international segment dropped by 25.6% to $650 million in 2Q16. The international segment reported an operating loss of $21 million in 2Q16 compared to a $33 million loss in 2Q15. Best Buy’s international segment comprises its Canada and Mexico businesses.
Weakness in international business
The decline in Best Buy’s international segment revenue stemmed from store closures and unfavorable currency movements. Best Buy closed 66 Future Shop locations in Canada and is in the midst of consolidating the remaining 65 Future Shop stores in Canada under the Best Buy brand. The second quarter was also affected by macroeconomic weakness in Canada and in the Canadian consumer electronics industry in particular.
Best Buy’s international segment accounted for 7.7% of the company’s total revenue in the first half of fiscal 2016, down from 10.1% in the comparable period of the previous year. Best Buy has been exiting unprofitable international businesses to focus on improving its domestic business. The company completed the sale of its Five Star business in China in February 2015. The company also sold its 50% stake in Best Buy Europe in 2013.
Recently, many retailers have faced headwinds in Canada. In the first half of 2015, Target (TGT) closed all its stores in Canada less than two years after it entered the country. In early 2015, Sony (SNE) announced its decision to close all 14 of its stores in Canada. Department store Sears Holdings (SHLD) sold a significant portion of its stake in Sears Canada in late 2014.
Best Buy accounts for 0.2% of the portfolio holdings in the iShares Russell Midcap Index Fund (IWR) and 1.4% of the Market Vectors Retail ETF (RTH).
Domestic segment performance
Best Buy’s domestic segment revenue increased by 3.9% to $7.9 billion in 2Q16, driven by strong performance in the large-screen televisions, major appliances, mobile phones, and health and fitness product categories. Weakness in tablet sales continued in 2Q16. Domestic revenue was also affected by a 13.1% decline in comparable services revenue, which was mainly due to a fall in repair revenue. The domestic segment’s operating income increased by 19.8% to $309 million, driven by higher sales and improved margins.
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